MORGAN STANLEY: Selling Cigarettes Will Be HUGE For Family Dollar

Family
Dollar is going to start selling cigarettes and it's expected
to be a big boon for business.

Morgan Stanley's Joseph Parkhill writes about it in a note to
clients today:

We believe the rollout of cigarettes can add ~300 bps to
FDO’s comp and push comps into the high single digits.
We estimate the rollout could add $0.18 to F2013 EPS, which is
now fully reflected in our street high $4.57 estimate. We raise
our price target to $77 and reiterate our OW rating.

Selling cigarettes is a pretty easy way for a retailer to boost
business. Parkhill notes that the incremental costs for
selling cigarettes is negligible and that it doesn't cannibalize
from other sales.

Cigarettes Should Be Very Accretive. Our view is that the sale of
cigarettes are all incremental (does not replace other sales) and
that there is little SG&A associated with its sales, so the
margins flow through to the bottom line...